Why can't I merge two vertices?
Merge wont work because you are selecting only one vertex, that shows up as two because of the mirror modifier, and if you try to merge it it will merge itself = nothing will happen. To join them properly just select one of the vertices and move it toward the center using the red arrow(x axis).

The blue/dark shading in your object is probably because of inverted normals, to fix it select all the vertices, press space and type "flip normals" then hit enter